Baidu Inc (ADR) (NASDAQ:BIDU) Hit In More Than One Way As Private Hospitals Stop Advertising On The Search Engine

Baidu Inc (ADR) (NASDAQ:BIDU) in conflict with private hospitals in China, a development that is expected to hurt the company’s ad revenue, but could also bolster its image. In the recent times, Baidu has been fighting low-quality ads or fake health-care information on its platforms. The company has gone a long way into even rejecting ads from some clients, mostly hospital advertisers.

Shares of Baidu Inc (ADR) (NASDAQ:BIDU) fell on the concerns about possible loss of revenue amid ad boycott by the hospitals. The boycott could last for several weeks and lead to further damages as hospitals slowdown ad spending on Baidu platform.

Baidu Inc (ADR) (NASDAQ:BIDU)’s crackdown on the so-called false health-care information on its platform is proving to be counterproductive. An association of Chinese private hospitals said its members pulled advertising on Baidu starting April 5, and the boycott could go on for a number of weeks.

The ongoing crackdown on the somehow inaccurate health-care information saw the Chinese leading search engine declining to accept ad requests from more than 7,800 hospitals in the country. The rejected hospitals are part of the association that has said its members are not posting ads on Baidu.

Impact on Baidu sales

The group that has pulled ads from Baidu Inc (ADR) (NASDAQ:BIDU) accounts for 15% of the company’s search revenue. The boycott is expected to wipe out nearly 1% of Bidu’s sales each week. Beyond that, the result of the conflict might lead to a longer-term slowdown in ad spending by Chinese private hospitals on Baidu.

Some analysts have already started moving to lower their sales predictions for Baidu Inc (ADR) (NASDAQ:BIDU). Analysts at Stifel Nicolaus & Co., for instance, cut their sales estimate for Baidu’s 2Q by 3% following the ongoing ad conflict with private hospitals.

Fighting for user trust

Baidu Inc (ADR) (NASDAQ:BIDU) has not been able to provide details of the nature of ads it is fighting on its platform. However, the company maintains that it will not cooperate with hospital advertisers that provide fake health-care information through its platform.

While it is true that Baidu Inc (ADR) (NASDAQ:BIDU) will suffer revenue loss because of its staunch stand on quality ads and perhaps alienate some hospitals for a longer time, analysts see the company benefiting from its move in the long-term. The reason for that is that Baidu will be able to win the trust of its users, which is the most important thing the company is trying to achieve.

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.